When my wife and I got married in December 2018, we had $74,550.50 of debt.
We both attended the same private Christian college and, like many others, had to take out some loans to pay for college.
I can’t speak for her, but I remember sitting down for my end-of-college loan informational meeting and getting smacked in the face with the reality that the bill was going to come due in 6 months.
At that point, I was still pursuing a professional baseball playing career and did some quick back-of-the-napkin math to realize that a meager Rookie Ball salary was NOT going to cover the amount I owed the Federal Loan Service.
That was 2017. My loans went into repayment in November of that year. Along the way, I decided not to keep pursuing a professional career, which set me free from the burden of trying to choose between eating and paying off student loans.
Each month, I made the minimum payment: $287.82. Most months, I made a double payment. But looking back on it, I could’ve done so much more.
As we approached our wedding day, we got our finances in order. I was working in an entry-level job as a sales associate for a local snack foods company and my wife was graduating from college and looking for her first job. While there wasn’t a lot of money to get in order, we wanted to know two things:
- How much money do we have each month?
- How much do we owe?
When you answer those questions, you have this thing called a budget.
So we figured it out (it wasn’t much). We said “I do”. And then we came back from our Honeymoon and got to work.
Since then, we’ve lived in 4 states and 6 homes. We’ve had little, and we’ve had more. But through it all, we’ve remained diligent on paying down our student loans.
Last week, the latest round of federal stimulus checks went out to Americans. And as we’ve done with the previous two rounds of stimulus checks, we quickly shuffled that money towards paying off our lowest debt.
After our most recent payment, we are on track to be debt-free within a year, or just over 4 years from when my loans first entered repayment.
But before we go any further, I want to answer a question I’m sure most of you are having…
Why are we talking about student loan debt?
After submitting our most recent loan payment, I was curious and decided to run a poll on Twitter.
Of 71 people who answered the first poll, 34 (or 47.9% of them) said that they’re still paying off loans. 38% never had them and 14.1% have already paid them off (way to go!).
That’s interesting, but that alone isn’t enough to dedicate a newsletter to.
What really frightened me was the next poll:
28 people responded to this poll, with an astonishing 57.1% of people saying that their student loans won’t be paid off for at least 5 years. I have no way to prove this, but I would guess that in many cases, it’s closer to 10 years or more.
That shook me.
Shook me because I know what coaches get paid (especially volunteer assistants, interns, and other “entry-level” coaches).
Shook me because I know that many good coaches will be forced to leave their sport because they simply can’t afford to do their job.
As soon as I saw this, I realized that I had to do something.
Because even though debt is common, it doesn’t have to be your reality. You don’t have to be making payments forever.
Just imagine how good it would feel if all the money you were currently putting towards your debt: student loans, car payments, and credit card, were instead going to building wealth. Whether that was buying a home, investing, saving up for your children’s college, or for the first time, feeling financially free. As someone who hasn’t gotten there yet, I’m with you. It’s going to feel amazing.
So what should you do?
How are you going to get there?
While the road ahead is certainly challenging, there’s a plan you can follow to get there.
It’s called the 7 Baby Steps, and I’d like to introduce you to its creator.
Meet Dave Ramsey, host of The Dave Ramsey Show and author of some books you’ve probably seen if you’ve ever explored the finance section at Barnes & Noble. He also founded Financial Peace University, a program that’s helped millions of people take control of their money and change their lives.
There are 7 “Baby Steps” to Financial Peace. Each step is difficult but actionable. In the game of wealth creation, it’s more Lindy1 than buying Bitcoin or trying to time $GME’s next meteoric rise.
Now, I’m not gonna lie to you. We’ve only made it to Baby Step 2, but the early steps of this plan have been so effective for us that I feel confident telling you about it today.
Because I don’t want to tell you to do something I haven’t done, I’m going to focus solely on steps 1 & 2.
Step 1: Save $1,000
So first, if you don’t have $1,000, you need to put $1,000 in a bank account that you don’t touch.
This is emergency money for that (always surprising) car repair, or the emergency house fix, or an unanticipated medical bill. This is money that protects your downside, keeping you from going further in debt. Start there.
The good news is that those of you in America should have $1,400 to allocate to this. Instead of spending it on something that will fade with time, choose to invest it in yourself and secure your immediate future.
Step 2: Unleash the Debt Snowball
Once you’re done with step 1, it’s time to turn your attention to your debt. It never really occurred to me that debt didn’t have to be my reality until Dave said so. I just assumed that it was normal to have student loan payments (note: what’s common isn’t always normal). And the way you do this is by using the debt snowball.
The debt snowball is easy.
- You list your debts out from smallest to largest regardless of the interest rate.
- You then make all of the minimum payments on all of your debts and allocate all your extra money towards paying off the smallest debt.
- You then repeat until each debt is paid in full.
As you pay off debts, the money you were using to make the minimum payments will be freed up to help you pay off your next smallest debt. As you gain momentum and pay off more of your debt, you will experience a compounding effect where the speed of your repayment actually increases.
But for this to work, you’ve gotta get serious.
As Dave tells listeners every day, you may need to sell that new car you bought and replace it with a cheaper one. You may need to get a second job or find a way to make additional money. You may need to start packing a lunch each day instead of grabbing Chipotle or Chick-fil-A.
We commonly tell our athletes that greatness is about sacrifice. The same thing applies here. If you want to “win with money”, be prepared to make plenty of sacrifices along the way.
Because if you want to live like nobody else in the future, you have to live like nobody else is willing to now.
- https://en.wikipedia.org/wiki/Lindy_effect [↩]